Ukraine: gas and oil prices rise amid fears of supply disruption

Russia supplies 30pc of Europe's gas demand, raising fears of shortages or
price spikes if the Ukraine conflict escalates to war

"If the conflict persists, then sanctions are likely to be placed on Russia. These sanctions could include sanctions on gas exports, which would place considerable strain on the UK, France and Germany," Inenco's Joe Conlan said.Photo: AFP/GETTY

Russia has already raised the spectre of another gas war by threatening to revoke a discount to Kiev on gas prices, citing unpaid debts. It had cut prices for Ukraine by a third after now-ousted President Viktor Yanukovich forged closer ties with Moscow in December.

Europe has become less dependent on imports via the Ukraine since a major new gas pipeline from Russia to Germany, Nordstream, opened in 2011.

However, sanctions on Russia could have a significant impact, experts said. “If Russia and Ukraine go to war, the consequences for the EU could be severe,” Joe Conlan at energy analysts Inenco said.

“If the conflict persists, then sanctions are likely to be placed on Russia. These sanctions could include sanctions on gas exports, which would place considerable strain on the UK, France and Germany.”

Mr Conlan said that while the UK does not directly import gas from Russia, it does receive “secondary imports, such as Russian exports of gas to Germany, and we import via pipelines from Belgium and Holland”.

“If we see this turn into a protracted conflict lasting through the summer then gas shortages may be a possibility,” he warned.

Britain has become more reliant on imports as North Sea supplies dwindle. The crises of 2006 and 2009 led for calls for new gas storage facilities, but ministers ruled out subsidies for new storage projects last year.

The mild winter has however resulted in relatively plentiful supplies, with storage levels 40pc higher than a year ago, lessening the risk of severe or prolonged spikes as the weather turns warmer.

The Department of Energy and Climate Change said that less than 1pc of UK gas is supplied from Russia, adding: “The risk to our energy supply is low.”

Analysts at Citigroup agreed, citing the warm winter and “ample infrastructure for gas to flow into Europe via alternative routes”.

Suppliers indicated the temporary price spike should not result in price rises for households.

“We buy energy in advance to give us greater cost certainty and attempt to protect our customers from price volatility,” a spokesman for SSE said.

Analysts at Bank of America Merrill Lynch warned that UK utilities could however face difficulties if gas prices do stay higher because the “political environment” makes it difficult to pass through higher costs to consumers.

Shares in BP, which has a 20pc stake in Russia’s state-controlled oil giant Rosneft, fell more than 2pc amid fears about its exposure to any sanctions on Russia.

Russia exports about 5m barrels of oil per day, with the “lion’s share” going to Europe, analysts at Commerzbank said. “It is hardly surprising that Brent has risen in response to the conflict, even though the risk of actual delivery outages is small,” they said in a research note.

“Russia is at least equally important when it comes to supplying Europe with natural gas, especially since most of the pipelines cross Ukrainian territory. That said, natural gas stocks are plentiful following the mild winter, so fears of any tightness of supply are exaggerated.”

Meanwhile, Russian Deputy Economy Minister Andrei Klepach has said that ruble will not collapse.

The currency fell to all-time lows against the dollar and the euro on Monday. It closed 2.2pc down versus the dollar .

"The ruble's weakening will have considerable inflationary consequences," Mr Klepach was quoted as saying. "There will not be a collapse [of the rouble]."

The central bank estimates inflation in 2014 to come at 5pc.

Worries about war also knocked global stock markets. Europe's main stock market fell on Monday, with Frankfurt's DAX 30 tumbling 3.44pc, the FTSE 100 dropping 1.49pc and Paris's CAC 40 shedding 2.66pc. Earlier Russia's leading indices, the Micex and RTS, plunged 11pc and 12pc respectively to lose $58bn in value - more than the cost of the Sochi Winter Olympics. As Europe closed, Wall Street was sharply lower.